For much of Amazon's (AMZN 1.16%) history, "buy Amazon stock" has been great advice.
If you had purchased shares of the e-commerce stock shortly after its IPO and held through the dot-com bust, there's a good chance you'd be a millionaire by now. The stock is up more than 100,000% since its debut, meaning it's turned $1,000 into more than $1 million.
Even if you'd bought Amazon a decade ago, you'd be up big, with returns over 8x.
However, in more recent years, Amazon stock hasn't been the no-brainer winner investors have expected. Over the last five years, the stock has actually underperformed the S&P 500, and that's true for much of the period between the last one to five years.
Even its pandemic boom wasn't enough to make the stock a sustainable winner.
Despite that recent performance, Wall Street still sees big things from the tech giant, with the average analyst calling for the stock to gain 37% over the next year at a price target of $176. Of the 41 analysts covering the stock, 40 rate it a buy, and the lone holdout calls it a hold.
However, while "buy Amazon" may be stock market advice that never goes out of fashion, investors might be better served by holding on to their wallets. Here are three reasons why.
Image source: Amazon.
1. Amazon isn't immune to the macro environment
Discretionary retailers are getting their teeth kicked in right now. Levi Strauss just cut its guidance. Nike posted near-flat revenue growth in its most recent quarter, and Target is plumbing a new 52-week-low nearly every day, it seems.
Wall Street is confident that the consumer is weakening as interest rates remain elevated and student loan repayments start again in the U.S.
Amazon has escaped most of the malaise thus far, but the company is the biggest discretionary retailer in the U.S., and those headwinds are likely to show up in its e-commerce performance.
Unlike at Costco or Walmart, groceries aren't much more than a drop in the bucket at Amazon, and consumers have proven to be sensitive to inflation in the discretionary categories that are the online retailer's bread and butter. Consumers would rather spend their money on activities like travel than buying more stuff, and that's likely to hurt Amazon's second-half performance.
Of course, Amazon is much more than an online retailer. In fact, its cloud computing division, Amazon Web Services (AWS), makes up the vast majority of its profits, but that division is also struggling.
Over the last several earnings calls, management said that AWS customers are cutting back on cloud spending and becoming more cost-conscious, and the once-blistering growth at AWS has cooled off. Revenue in the segment grew just 12% in the quarter, and AWS profits actually fell. While it's still highly profitable, it could be several quarters before AWS becomes the bottom-line growth driver that investors are used to.
2. Regulators keep knocking on Amazon's door
Last month, the Federal Trade Commission and 17 states sued Amazon for monopolistic trade practices, including punishing marketplace sellers who try to sell their products for cheaper elsewhere by burying their listings and monopolizing the market for e-commerce sellers in other ways.
The company also faces a probe in the U.K. over Amazon's (and Microsoft's) dominance in the cloud infrastructure.
While the direct impact of these regulatory moves might not make a dent in Amazon's bottom line, it seems that they are already starting to influence the company's behavior. For example, Amazon recently reversed a decision to charge merchants a fee for not using its fulfillment services, stepping back from the kind of monopolistic practices the FTC is charging it with.
An extended trial could reveal some unsavory details about the company and impact its reputation, which could have long-term effects. A multibillion-dollar fine wouldn't be swept under the rug so easily either.
3. It's starting to look like Day 2
Jeff Bezos may not be rolling over in his $500 million yacht just yet, but his biggest fear for the company he founded may be coming true.
In one of his last shareholder letters, Bezos implored Amazon to hold fast to the "Day 1" mentality of experimenting and thinking like a start-up. However, new CEO Andy Jassy seems to be putting a different imprint on the stock, casting aside many of the company's experimental businesses in order to drive profitability.
That could pay off on the bottom line, but the company seems to be pivoting away from the approach that made early shareholders big winners and helped define Amazon's identity.
Even as Amazon's profits seem likely to move higher after it axed 27,000 jobs earlier this year, cost cuts aren't a repeatable strategy, and revenue growth is likely to be more modest now that its annual revenue is approaching $600 billion.
No longer a no-brainer?
Amazon still fetches the multiple of a high-growth company, but with an unfriendly macro environment, mounting regulatory challenges, and a cultural shift to behaving like a mature company, the stock is far from the no-brainer buy it once was.
Waiting for the macroeconomic environment to improve seems like a better strategy here.
